Amazon has a plan to tackle Temu, Shein

Amazon’s push to offer more everyday essentials like toothpaste is hurting its average selling prices, but it is also a guard against rivals such as Temu and Shein that offer rock bottom prices on goods they ship from China.

People are shopping more frequently at Amazon, adding more low-priced items with each checkout, Amazon said on Thursday, after it reported third-quarter revenue and profit that beat Wall Street expectations.

The company’s stock, which has gained nearly 27% this year, was up about 7% in early trading on Friday.

The e-commerce giant has seen its market share erode in apparel as Shein and Temu expanded in international markets with $12 dresses and $10 gadgets. But offering a variety of everyday products like dish detergent and floss with quick delivery is helping Amazon.

“The strength in everyday essentials revenue is a positive indicator that customers are turning to us for more of their daily needs,” said Amazon’s Chief Financial Officer Brian Olsavsky. “We see that when customers purchase these types of items from us, they build bigger baskets, shop more frequently and spend more on Amazon.”

In August, Amazon CEO Andy Jassy said average selling prices were falling because customers were trading down to cheaper items and buying more essential goods, and that sales of bigger ticket items like computers and electronics were growing “more slowly” than in a robust economy.

“It is certainly a good plan on Amazon’s part. It’s part of that driving cost savings, if we’re already bringing stuff to you, we can fit more in one box,” said Brian Mulberry, client portfolio manager at Zacks Investment Management, which has a stake in Amazon.

However, John Belton, portfolio manager at Gabelli Funds which owns Amazon shares, said he is expecting more pressure on Amazon’s selling prices in the fourth quarter because of the company’s mix of products.

LOCAL WAREHOUSE STRONGHOLD

To offset the impact of lower average selling prices, Amazon is relying on its deep network of local warehouses that allows it to ship quickly.

It’s “pretty easy to choose to supply” lower average selling price (ASP) merchandise, but much harder to be able to afford to supply them, Jassy said on Thursday.

“One of the reasons that we have been so maniacal about cost-to-serve over the last few years is that as we’re able to take our cost-to-serve down, it just opens up the aperture for more items, particularly lower ASP items that we’re able to supply in an economic way,” he said.

Shein is trying to ramp up selling everyday products too.

Earlier this year, it began courting skincare and personal care brands such as Colgate-Palmolive to sell more household names on the platform. It launched a third party marketplace in 2023 to expand its product selection to include beauty and personal care products, household items and furniture.

But companies such as Shein would be less successful in expanding to day-to-day products, said Gil Luria, head of technology research at D.A. Davidson.

Shein and Temu have specialized in offering dresses, accessories and gadgets “that the consumer is less time-sensitive about,” he said.

Amazon, however, is facing competition from rivals at home.

Walmart, the world’s biggest supermarket chain, and smaller retailer Target have both slashed prices on essentials in a race to the bottom as they each try to woo inflation-wary shoppers.

Walmart, scheduled to report third-quarter results on Nov. 19, is expected to post a 4% rise in revenue, according to analysts polled by LSEG, a slightly slower pace of growth than in the second quarter.